Tuesday, October 9, 2007

Consumer Spending Crunch

The Central Bank has looked ahead to 2008 and doesn’t like what it sees. The worrying forecast for marketers is the one for consumer spending – the Bank projects a decline in spending growth from 10.25% this year to 6.25% next year. That includes inflation: but if you just focus on consumer spending volumes then growth will fall from 7.0% this year to 3.75% in 2008.

The key question then: are you in a sector that closely follows the trend in overall consumer spending, or not? I have analysed the correlation between overall consumer spending growth and growth in different sub-sectors since 1995 to get some clues (a full set of the data I used is available from the CSO - tables 13 and 14 are the key ones: note, opens as an Excel spreadsheet).

If you are in the clothing, footwear, alcohol, telecoms and tobacco sectors then watch out – in all likelihood your market will experience the same sharp downturn in its growth rate next year as total spending.

On the other hand, if you are in the entertainment, travel (abroad) and non-alcoholic beverage sectors then you may find yourself wondering ‘what slow down’?

Of course, it is important to note that growth is still growth – and when the consumer spending pie is as big as it is (over €91 billion this year alone), then 6.25% adds up to an extra €5.8 billion in spending next year. We'd all be happy with a piece of that extra pie.

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